Yet, let's be frank. A chart looks clearer in hindsight than in real time. If you're holding shares in a stock, emotions can distort what you're willing to see and accept.

Your inner monologue might go like this: "Yes, I can see the stock made new highs in low volume and trade has turned sloppy, but didn't it just get an upgrade from a well-respected investment firm, and didn't some hedge-fund phenom say the stock was a screaming buy, and why sell now when the Street is expecting blowout earnings in the current quarter? Why would I want to sell now just when it's getting interesting?"

If you've learned how to read a chart, the inner monologue can be reduced to seven words: "This kind of action is often trouble."

Today we are going to focus on just one area: wide and loose action and big price spikes up or down.

These are often the clearest signs that the wheels are about to come off. The story goes like this:

A leading stock breaks out of a base and advances in a tight and rather orderly way. The swings from the intraday highs to lows are relatively narrow.

The rise on a stock's chart looks smooth and stable. Then things begin to change. It is still advancing but the spreads get wider.

A big price spike up or down is next. Often, it's an up move that could be the start of a climax run. Ideally, you sell on the way up. This is not a time to play a game called, "Can I Pick the High Just Before This Thing Blows Up?"

A big price spike down may come next. This is often a somewhat late sell signal.

In 1998, Amazon.com (NASDAQ:AMZN) was on a great run. The stock cleared a 16.70 buy point (adjusted for a 3-for-1 split) in June and marched to a 187% gain in one month. It sketched a new base and cleared a 49.10 buy point in November 1. Notice how tight the action was initially, and how the daily trading price range from low to high became progressively looser.

By early January 1999, the astute investor would've noticed the trade was now wild 2; it was time to sell into the climax run.

Yet, let's be frank. A chart looks clearer in hindsight than in real time. If you're holding shares in a stock, emotions can distort what you're willing to see and accept.

Your inner monologue might go like this: "Yes, I can see the stock made new highs in low volume and trade has turned sloppy, but didn't it just get an upgrade from a well-respected investment firm, and didn't some hedge-fund phenom say the stock was a screaming buy, and why sell now when the Street is expecting blowout earnings in the current quarter? Why would I want to sell now just when it's getting interesting?"

If you've learned how to read a chart, the inner monologue can be reduced to seven words: "This kind of action is often trouble."

Today we are going to focus on just one area: wide and loose action and big price spikes up or down.

These are often the clearest signs that the wheels are about to come off. The story goes like this:

A leading stock breaks out of a base and advances in a tight and rather orderly way. The swings from the intraday highs to lows are relatively narrow.

The rise on a stock's chart looks smooth and stable. Then things begin to change. It is still advancing but the spreads get wider.

A big price spike up or down is next. Often, it's an up move that could be the start of a climax run. Ideally, you sell on the way up. This is not a time to play a game called, "Can I Pick the High Just Before This Thing Blows Up?"

A big price spike down may come next. This is often a somewhat late sell signal.

In 1998, Amazon.com (NASDAQ:AMZN) was on a great run. The stock cleared a 16.70 buy point (adjusted for a 3-for-1 split) in June and marched to a 187% gain in one month. It sketched a new base and cleared a 49.10 buy point in November 1. Notice how tight the action was initially, and how the daily trading price range from low to high became progressively looser.

By early January 1999, the astute investor would've noticed the trade was now wild 2; it was time to sell into the climax run.

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